Question 1

With respect to the holding entities statement of comprehensive income,what reference is made to the subsidiary&#10;A)As revenue&#10;B)as dividends received from the subsidiary&#10;C)as the costs of investment&#10;D)aggregated in the main profit line

Accepted Answer

Dividends received from the subsidiary are often the only direct reference to the subsidiary in the holding company's statement of comprehensive income, reflecting the returns on the investment in the subsidiary.

Question 2

Which of these describes the correct order of steps of consolidation of statements of financial position?&#10;A)Initially calculate the goodwill,then revalue the net assets of the subsidiary to fair value.Then consolidate the accounts&#10;B)Initially calculate the goodwill,then consolidate the accounts.&#10;C)Initially revalue the assets of the subsidiary to fair value then consolidate the accounts&#10;D)Initially add the total assets of the combination then the liabilities and then calculate the goodwill

Accepted Answer

Initially calculate the goodwill, then revalue the net assets of the subsidiary to fair value. Then consolidate the accounts.

Question 3

What is the purpose of consolidation adjustments?&#10;A)they are required at year end to adjust for goods or cash which are in transit between entities in the group after the consolidation date&#10;B)they are required at year end to deal with the fact that the subsidiary is operating in a different currency to the parent.&#10;C)they are required at year end to adjust for goods or cash which are in transit between entities in the group before the consolidation date&#10;D)they are required at the year end to allow for the fact that the value of assets in transit has changed due to inflation

Accepted Answer

Consolidation adjustments are made to ensure that the financial statements of the subsidiary companies are combined accurately with those of the parent company. One of the types of consolidation adjustments is for goods or cash in transit between entities in the group before the consolidation date. This is to ensure that transactions and balances are correctly reflected in the consolidated financial statements.

Question 4

Only the parent share of the reserves post consolidation date can be included in a consolidated statement of a date later than acquisition date.

Accepted Answer

This is true as the parent share of reserves can only be included in the consolidated statement from the consolidation date onwards. Any reserves acquired by the subsidiary before the consolidation date belong to the subsidiary and cannot be included in the consolidated statement.

Question 5

Preparing consolidated financial statements is the responsibility of the parent company

Accepted Answer

Consolidated financial statements are prepared by the parent company by combining the financial statements of its subsidiaries. Therefore, it is the responsibility of the parent company to prepare consolidated financial statements.

Question 6

IFRS 10 requires consolidated financial statements using uniform accounting policies for like transactions

Accepted Answer

IFRS 10 requires the use of uniform accounting policies for like transactions in the preparation of consolidated financial statements. This is to ensure that transactions between a parent company and its subsidiaries are accounted for consistently, providing users with a clear picture of the financial performance and position of the group as a whole.

Question 7

The consolidation adjustment assumes that we account for items in transit between entities at the statement date as prior to their transit.

Accepted Answer

The consolidation adjustment requires that we account for items in transit between entities at the statement date as if they have already reached their destination, ensuring that intercompany transactions are eliminated and not double-counted in the consolidated financial statements.

Question 8

Which of these would not be a mixed group&#10;A)X owns 25% of the voting rights of Y.X also owns 95% of the voting rights of Z.Z holds 40% of the voting rights of Y&#10;B)X owns 55% of the voting rights of A.X also has the right to choose 3 of the 5 board members&#10;C)X owns 70% of the voting rights of B,and 75% of the voting rights of C.C and B both own 20% of the voting rights of D.X owns 20% of the voting rights of D.&#10;D)X owns 25 % of the voting rights of E.it also owns 100% of the voting rights of F.F owns 40% of the voting rights of E.

Accepted Answer

In option B, there is no mention of any other entity owning any voting rights or having any board member selection power, which means it is not a mixed group. In all the other options, there are at least two entities who have voting rights or board member selection power, making them mixed groups.

Question 9

IFRS 8 introduces the concept of de facto control

Accepted Answer

IFRS 8 relates to operating segments and requires that an entity disclose information about its operating segments, products and services, the geographical areas in which it operates, and its major customers. The concept of de facto control is more relevant to the consolidation standards such as IFRS 10, which deals with the principles of control and consolidation of financial statements.

Question 10

How are accounts involving more than one subsidiary consolidated?&#10;A)Sequentially for each company,calculate the goodwill,revalue the net assets,then consolidate the accounts.&#10;B)Sequentially for each company,calculate the goodwill,then consolidate the accounts.&#10;C)Sequentially for each company,revalue the assets of the subsidiary to fair value then consolidate the accounts.&#10;D)Sequentially for each company,add the total assets of the combination and then the liabilities then calculate the goodwill.

Accepted Answer

Sequentially for each company, the process involves calculating the goodwill, revaluing the net assets to their fair values, and then consolidating the accounts. This ensures that the consolidated financial statements reflect the true economic value of the acquired entities.

Deck 27: Consolidated Financial Statements